DOL Issues Proposed Regulations Implementing Paid Sick Leave Executive Order

As you may recall, on September 7, 2015 (Labor Day), President Obama signed Executive Order 13706, which requires federal contractors to provide their employees with paid sick leave.

On February 24, 2016, the Department of Labor (“DOL”) issued a Notice of Proposed Rulemaking (“NPRM”) implementing that Executive Order. The NPRM provides contractors with a better idea of what employers and employees are covered, what the accrual requirement is, and what the leave may be used for.

Covered Employers

As a general matter, the paid sick leave rule would apply only to contractors who enter into new contracts on or after January 1, 2017. Of more note, however, is that the NPRM clarifies that the rule would only apply to contractors with certain types of contracts. Specifically, the paid sick leave rule would apply to contractors with:

1. procurement contracts for construction covered by the Davis-Bacon Act (“DBA”);
2. service contracts covered by the McNamara-O’Hara Service Contract Act (“SCA”);
3. concessions contracts, including any concessions contracts excluded from the SCA by the Department’s regulations at 29 CFR 4.133(b); and
4. contracts in connection with Federal property or lands and related to offering services for Federal employees, their dependents, or the general public.

This is the same category of contractors who must comply with the Minimum Wage Executive Order. We recommend that our clients review the types of contracts/subcontracts they hold with the federal government to determine whether the paid sick leave obligations will apply to them. Please let us know if you need assistance in this process.

Covered Employees

Assuming that the employer qualifies as a covered employer, then the NPRM would apply to employees whose wages are governed by the Service Contract Act, Davis-Bacon Act or Fair Labor Standards Act (“FLSA”), including those who are exempt from the minimum wage and overtime provisions of the FLSA.

The NPRM would only require that employees accrue and use paid sick leave while working “on or in connection with” covered contracts. Employees perform work “on” a covered contract if their work involves the specific services outlined in the contract. Employees perform work “in connection with” a covered contract if their work activities are necessary to the performance of that contract, but they are not directly engaged in the specific services outlined in the contract.

Employees who do not perform work on or in connection with the covered contract would not be entitled to paid leave under this law.

Accrual

Under the proposed rules, eligible employees would accrue one (1) hour of paid sick leave for every 30 hours worked on or in connection with a covered contract, to be calculated at the end of each workweek. In the alternative, rather than allow the employee to accrue leave based on hours worked, contractors also have the option to provide an employee with at least 56 hours (7 days) of paid sick leave at the beginning of each accrual year in a lump sum. All covered contractors would be required to inform employees in writing of the amount of paid sick leave they have accrued no less than monthly and at other times.

Sick leave would accrue for all time for which an employee is paid or should be paid, meaning time an employee spends working or in paid time off status, including time when the employee is using paid sick leave or any other paid time off provided by the contractor.

Notably, employees would only accrue the sick leave if working “on or in connection with” a covered contract. Consequently, time spent on non-covered tasks or contracts would not require any accrual of paid leave. Contractors will, therefore, have to maintain accurate records that reflect the time worked in covered and non-covered duties.

Maximum Accrual, Carryover, Reinstatement, and Payment for Unused Leave

The NPRM provides that contractors may limit the total amount of paid sick leave employees may accrue to 56 hours each year and must permit employees to carry over accrued, unused paid sick leave from one year to the next.

Furthermore, under the proposal, contractors will be required to reinstate employees’ accrued, unused paid sick leave if the employees are rehired by the same contractor or a successor contractor within 12 months after separation. With that said, nothing in the rule requires contractors to pay out the accrued, unused paid sick leave at the time of a job separation.

Use

An employee may use paid sick leave for an absence resulting from:

(i) physical or mental illness, injury, or medical condition;
(ii) obtaining diagnosis, care, or preventive care from a health care provider;
(iii) caring for a child, a parent, a spouse, a domestic partner, or any other individual related by blood or affinity whose close association with the employee is the equivalent of a family relationship who has any of the conditions or needs for diagnosis, care, or preventive care described in paragraphs (i) or (ii) or is otherwise in need of care; or
(iv) domestic violence, sexual assault, or stalking, if the time absent from work is for the purposes otherwise described in paragraphs (i) and (ii), to obtain additional counseling, to seek relocation, to seek assistance from a victim services organization, to take related legal action, or assist an individual related to the employee as described in (iii) in engaging in any of these activities.

In addition, under the NPRM, contractors must account for the use of paid sick leave in increments of no greater than one hour, and a contractor may not reduce an employee’s accrued paid sick leave by more than the amount of leave the employee actually takes. The contractor must provide employees using paid sick leave with the same pay and benefits they would have received if they had not used the leave.

Requests to Use Leave and Certification or Documentation of the Need to Use Leave

The Department proposes that paid sick leave shall be provided upon the oral or written request of an employee and that a leave request must be made at least seven (7) calendar days in advance where the need for the leave is foreseeable, and in other cases as soon as is practicable. A contractor would be required to communicate any denial of a request to use paid sick leave in writing, with an explanation for the denial.

Under the proposal, a contractor may only require certification for absences of three or more consecutive days. If the paid sick leave is used for the physical or mental illness, injury, or medical condition of the employee; obtaining diagnosis, care, or preventive care from a health care provider by the employee; or caring for the employee’s child, parent, spouse, domestic partner, or any other individual related by blood or affinity, the certification would be issued by a health care provider. If the paid sick leave is used for an absence resulting from domestic violence, sexual assault or stalking, the documentation provided would be from an appropriate individual or organization with the minimum necessary information establishing a need for the employee to be absent from work. The contractor would be prohibited from disclosing any verification information and would be required to maintain confidentiality about domestic abuse, sexual assault, or stalking, unless the employee consents or when disclosure is required by law.

Interaction with Contractor’s Existing Paid Time Off (PTO) Policies

The Department’s proposal explains that, if the above conditions are met, contractors’ existing PTO policies can fulfill the paid sick leave requirements of the Executive Order.

With that said, in states like Nebraska which require the pay out of PTO upon separation, contractors should consider whether to separate out the paid sick leave obligations from existing PTO policies. Because contractors would have to reinstate any unused paid sick leave if the employee is rehired within a year, they face a scenario where they would have already paid out the PTO amount pursuant to state law, but yet would still have to reinstate the leave accrual amount.

Other Obligations

Contractors must also keep the following records:

1. name, address, and SSN for each employee;
2. employee’s occupation/classification;
3. wage rate paid;
4. daily and weekly hours worked;
5. deductions made from pay;
6. total wages paid each pay period;
7. a copy of notifications to employees of the amount of paid sick leave the employees have accrued;
8. a copy of employee requests to use paid sick leave;
9. dates and amounts of paid sick leave each employee uses;
10. a copy of any written denials of employee requests for paid sick leave;
11. a copy of certification or documentation contractor received regarding an employee’s need for paid sick leave;
12. records showing any tracking of or calculations related to employee’s accrual and/or use of paid sick leave;
13. a copy of any certified list of employees’ unused paid sick leave provided to a contracting officer;
14. a copy of any certified list of employees’ unused paid sick leave received from a contracting officer; and
15. the relevant covered contract.

The contractor must inform all employees performing work on or in connection with a covered contract of the paid sick leave requirements under the Executive Order by posting a notice in a prominent and accessible place at the worksite. Electronic posting is sufficient.

Contractors covered by the paid sick leave rule will have to include a specific contract clause in their lower tier contracts. We will provide our clients with the appropriate clause once the regulations are finalized.

Finally, upon completion of a federal contract, contractors are required to provide the contracting officer with “a certified list of the names of all employees entitled to paid sick leave… who worked on or in connection with the covered contract or any covered subcontract(s) at any point during the 12 months preceding the date of completion of the contract.” The certified list shall include the employees’ names and the amount of paid sick leave each employee accrued and had available for use as of the date of contract termination or the date the employee separated from the contract or subcontract. The contracting officer must then provide this certified list to the successor contractor, to enable the successor to comply with its obligations to continue the employees’ accrued paid sick leave.

Opportunity for Public Comment

The NPRM is available for review at www.regulations.gov and at the Department of Labor’s Website. Contractors have until April 12, 2016 (extended from March 28, 2016) to submit comments. Final rules, which will be published by September 30, 2016, will go into effect beginning January 1, 2017.

Kelli P. Lieurance